Hold fiscal reins or loosen?

February 01, 2016 02:20 am | Updated February 05, 2016 11:44 am IST

Should the Finance Minister keep the reins tight and not stray any further from the time-bound path of deficit reduction? Or should he give a boost to the economy by loosening the reins? Many eminent economists, including the Governor of the Reserve Bank, the Chief Economic Adviser, and the Vice Chairman of NITI Aayog have expressed their views on this important issue.

Related to this is the vexatious issue of insufficient allocations for the social sector, and infrastructure too, where India has to make much faster improvements. The Finance Minister would find it much easier to achieve both objectives — providing enough resources for priority areas, and balancing the budget — if implementation was more effective and outcomes could be produced more efficiently.

Poor implementation is a fundamental problem in India. It takes much longer to get things done in India than other countries. Projects are mired in disputes. Poor coordination amongst agencies ties up projects and policies in knots. The consequences of this are poor productivity of resources and as a result of that there is reluctance among investors to risk more money in infrastructure and social sector projects. In fact, at the conclusion of extensive consultations of the erstwhile Planning Commission with stakeholders, a business leader summarized it well. ‘No more foundation stones, please. Let us have only finishing stones for a few years’.

Improvement of implementation will require the building capabilities of institutions to plan and get things done.

Capabilities must be built, of state level institutions, urban bodies, and district and village level institutions, to plan and do better. At the same time, processes of collaboration and coordination amongst agencies in the centre, and between the states and the centre must be improved. Indeed, recognizing the institution building agenda as the most critical need of the country, the top-down, allocation-oriented Planning Commission has been replaced by the NITI Aayog.

The NITI Aayog has been chartered to develop processes for coordination and implementation, and to build requisite capabilities.

The finance minister’s budget is an occasion for him to strongly signal the need for a national thrust for building institutional capacities for implementation, and to enable this thrust with resources. The PMO can provide the ‘Muscle’ for the thrust, as it seems inclined to. The NITI Aayog can provide the ‘Mind,’ the architecture and design of processes required as it has been chartered to, and for which the previous Planning Commission had already left some blue prints in the description of the India Backbone Implementation Network and processes for developing urban and rural local management capacities.

The finance ministry can provide the ‘Money’. Their ‘3M’ cooperation in this strategic thrust will put India onto a trajectory of faster, more inclusive, and more sustainable growth.

Arun Maira was a member of the erstwhile Planning Commission and a former Chairman of Boston Consulting Group in India

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